Five Strategies of Successful Prosper Lenders — Part One

After watching what has worked for seasoned Prosper investors who’ve been loyal clients for years and have invested consistently with good results, we came up with Five Strategies of Successful Prosper Lenders. The first strategy? Know your motivation.

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STRATEGY ONE: Understand what drives you to invest.

We have two primary types of lenders here at Prosper, each with very different goals.

Our Social Lenders want great returns, but they also place a high value on the social impact of their investments. These lenders are drawn to the idea of investing in real people, instead of a faceless mutual fund or corporation. For example, one of our lenders, Rozu_lending, focuses on making large investments in loans to enlisted personnel and soldiers returning to civilian life.

Another of our lenders, KiwiElf, describes his philosophy in his Member Profile, saying that he considers his Prosper funding “part of a possible social revolution” and that Prosper provides “a way to help spread the love through a community.”

Social Lenders tend to use our powerful Search tools to find loan listings that they want to invest in. For example, they could find all listings that mention “solar” or “teacher” (or any other term of interest!) using the full-text search box present on many of our Search pages. They take the time to read borrowers’ detailed descriptions in order to get a feel for the purpose of the loan and the qualities of the person they are lending to.

Analytical Lenders, on the other hand, look for a technical edge to their investments and base their investment decisions on Prosper’s extensive loan performance data. One example of this type of lender is LendStats_com. Run by an investor well-known within the peer-to-peer investing community, his website aggregates a host of lending stats in one place in an easy-to-read but still data-rich format.

Another of our active Analytical Lenders is reflective-rupee. He uses a large number of custom-built searches to identify potential investments – 26 of which he also makes available to other lenders for review! He also uses his profile to provide guidance to prospective borrowers, giving them advice on what information to include when writing their listing descriptions.

While their specific strategies may differ, these Prosper lenders ultimately rely on quantitative data and analysis to select investments they expect to be most profitable.

Regardless of which type of lender you are, peer-to-peer lending has proven to be a viable investment asset class that delivers risk-adjusted returns that have attracted Social and Analytical Lenders alike consistently over the years. Like any form of investing, it’s wise to have a purpose that guides you. And knowing your own motivation for investing will drive many of your subsequent decisions in order to keep you focused and adaptable to market conditions and opportunities on Prosper.

What type of lender are you? We’d love to hear more about what motivates our investors. Use the comments below to tell us about your investment goals.

In our next section, we’ll cover the second strategy of successful Prosper lenders: Know your appetite for risk.

2 Responses

Nice article. I fall into the quantitative investment camp. I use Lendstats to work out what filters provide the best return for investors. Then I setup automated plans to execute these investments. Only occasionally do I read the loan descriptions.

Michael Fraser | June 11th, 2011 at 2:39 am

I have a different purpose driving my lending activity over the years on Prosper: I search using both the energy and business key words for borrowers who are creating jobs with their investments. If they describe how they are hiring people, then I look at the various financial data that Prosper provides. I find what I consider to be terrific bargains in the D and C ratings since often they are better credit risks than the process allows. The net result is I am funding my own mini stimulus packages while earning an above average return.

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